As a successful small business owner, you must stay within your budget and make sure that all the matters of your business are met. Without working within the confines of a budget, making sure all your expenses are met, you can literally turn your business up-side-down, and become financially unstable to where you either have to close your doors and/or file bankruptcy. So, as a successful business owner, you must make financial decisions every day! The following scenario is not uncommon at all, in terms of the details of the matter; but in many families, there are dynamics that occur, especially when one family member is financially sound and seemingly wealthy. So, this is a case worth exploring BEFORE it ever comes up, if it hasnt already. Keep in mind, that by putting something in writing, even though youve agreed to loan someone money, often, it becomes a deterrent, because now it’s official. Now, it is their signature is on the page. For people who are even remotely considering not living up to their agreement, they will back down when asked to put it in writing. This is often a good strategy for simply calling their bluff; aside from the fact that an amount this size must be in writing to begin with under the Statute of Frauds.
Here’s the Scenario:
You have a family member who is close to you, and they have come to ask you for a loan of $4500.00 in order to invest in a start-up business. You have inquired as to why they have not gone to a bank or VSBDC (http://www.vsbdc.com/ (Links to an external site.)) for a loan, and their answer to you is that if the business takes off, youll be part of the business too.
Once youve thoroughly explored and read articles below, based on the research provided, please answer the following questions:
Would you refuse their request? Why or why not? What are your specific considerations when making your decision? Explain in detail.
If this is a business plan that was created by your family member, list 3-5 items that you would be looking for in terms of the business feasibility, such as who runs the business, exit strategies, financial operations, etc. (You can bullet these items but give a brief explanation of each one and why they would be important to review.)
In considering if this is a business venture, if this is an investment into a business, how can you tell if it’s a scam? What is a Pyramid Scheme? How do they operate? How do you tell if a business is a pyramid scheme? What are the “red flags to look for when looking over a business plan? What are the differences between a legitimate multi-level marketing company and a pyramid scheme?
(Optional) Have you personally ever been invited to get involved with a pyramid business? How did you find out it was a scam? What warning signs would you look for now? What advice would you give to others based on your own experience?
Say you decide to loan them the money after conducting your own investigation, but you simply want to be repaid, rather than becoming a business partner. List 4-5 conditions you would include in your loan agreement with them and explain why these would be important to your agreement. For example: Repayment Schedule, interest, late fees, etc.
Post your thread and then discuss these issues with three or more of your peers.
RESEARCH:
Should You Lend Money to Family or Friends? By Andrew Beattie | Updated June 21, 2018
https://www.investopedia.com/articles/pf/09/to-lend-or-not-to-lend.asp (Links to an external site.)
6 rules for loaning money to a family member
https://www.businessinsider.com/rules-for-loaning-money-to-family-2016-10 (Links to an external site.)
What to Include in Your Business Plan
https://www.entrepreneur.com/article/239407 (Links to an external site.)
Business plans help you run your business
https://www.sba.gov/business-guide/plan-your-business/write-your-business-plan (Links to an external site.)
PYRAMID SCHEMES
https://www.investor.gov/protect-your-investments/fraud/types-fraud/pyramid-schemes (Links to an external site.)
Don’t Get Caught in a Pyramid Scheme
https://ag.ny.gov/consumer-frauds/pyramid-schemes (Links to an external site.)
Pyramid Schemes: International Monetary Funds Seminar on Current Legal Issues Affecting Central Banks, Washington, D.C., DATE: May 13, 1998 by Debra A. Valentine (Links to an external site.), Former General Counsel
https://www.ftc.gov/public-statements/1998/05/pyramid-schemes (Links to an external site.)
VSBDC
http://www.vsbdc.com/ (Links to an external site.)
What is a Loan Agreement?
https://www.debt.org/credit/loans/contracts/ (Links to an external site.)
8 Key Terms to Consider When Reviewing a Loan Agreement
https://legalvision.com.au/8-key-terms-to-consider-when-reviewing-a-loan-agreement/ (Links to an external site.)
Loan Agreements with Family And Friends
https://www.debt.org/credit/loans/friends-family/ (Links to an external site.)
Statutory Contract Law and Legal Definition
https://definitions.uslegal.com/s/statutory-contract/ (Links to an external site.)
Ten Things to Consider When Reviewing Your Business Plan
https://www.allbusiness.com/ten-things-to-consider-when-reviewing-your-business-plan-1735-1.html (Links to an external site.)
How to Loan Someone Money And Actually Be Paid Back, According to Experts
https://www.bustle.com/p/how-to-loan-someone-money-actually-be-paid-back-according-to-experts-11910851 (Links to an external site.)
Neither a Borrower nor a Lender Be
https://literarydevices.net/neither-a-borrower-nor-a-lender-be/ (Links to an external site.)